Whether you start making money on the side or take the full time leap into self-employment it’s vital that you track your income and expenses.
My first year of side hustling I did a good job tracking my income but not so much on expenses. When tax time rolled around I had to spend hours going through all of my accounts tracking down what I spent. It wasn’t fun.
But taxes aren’t the only reason you should track business income and expenses.
Why You MUST Track Business Income and Expenses
Beyond a tax perspective you need to do this if you want to be able to grow your business.
Think about it, if you don’t have a place you can look at each month how will you know which areas of your business are growing and which are performing poorly? It’d be pretty hard to tell. You need to monitor your income streams in order to know which ones need work and which ones you should drop altogether.
This is also helpful when you’re comparing freelance client pay. You can look in one place and see exactly how each of your clients rank when it comes to income.
Track your income and expenses so you can grow your business. You need to be aware of where you stand each and every month.
How Much Do You Need to Save for Taxes?
I think many people go into side hustling and self-employment blindly not realizing just how big of a chunk they’re going to owe Uncle Sam once tax time rolls around. I know I surely did.
In addition to owing Federal and State Taxes you’re also on the hook for social security and Medicare. These FICA taxes that used to be paid by your employer are now up to you. Even better, you have to pay the portion your employer used to pay on your behalf. That means double.
You need to set aside 15.3% of your self-employment income for the first $118,500 you earn in 2015. (12.4% Social Security and 2.9% Medicare)
That’s an automatic 15.3% and then you factor in federal and state taxes. For me 25% total works based on my tax calculator. I see a lot of other people saving 30% of their net income. You need to take your personal situation into account to figure out what’s best for you. (Or talk to an accountant!)
Plus, once you’re income builds you’ll also be responsible for sending in quarterly taxes. You need to have your income and expense ducks in a row!
How I Track My Business Finances
I don’t use any fancy software to track my business finances. Instead, I use a Google Doc. While I typically like to physically write things out, tracking my income online works better for me.
Below is a link to a google doc spreadsheet with the formatting I use to track my income, expenses, and taxes. This spreadsheet assumes a 25% tax saving rate and will automatically calculate your gross income, total expenses, net income, taxes, and take home pay once you enter your income and expense information.
A 25% tax savings rate isn’t right for everyone so you may need to change that for your particular circumstances.
Download the Google Doc Sheet **Click the link and then go to “File” and then “Make a Copy” to save it your Google Drive.**
I’m also trying to put together a new business binder so I had a business income worksheet created. This printable contains the same info. (Only it obviously doesn’t automatically calculate stuff for you, although I wish it did! )
If you’re trying to grow a business or are making any money outside of a regular day jobs you need to stay on top of things. Find a way to track your business income and expenses so you can grow your income, stay on budget, and be ready when it comes time to pay taxes.
How do you track your business finances?